Facebook IPO: Are users really worth $125 each?

The Facebook IPO suggests that the social network's 800 million users are worth $100 billion. What role will Facebook's audience play as the mega giant files what could become one of the largest IPOs of all time.

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    Facebook employee work inside the company's HQ in Menlo Park, Calif. Facebook, the social network that changed "friend" from a noun to a verb, is expected to file as early as Wednesday to sell stock on the open market. Its debut is likely to be the most talked-about initial public offering since Google in 2004.
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As Facebook reportedly gears up to file for its initial public stock offering Wednesday, the value of its 800 million users has come into question. Facebook, the world’s largest social network, has been estimated to be worth $100 billion. That makes each user worth $125.

Compared with other social media companies that have gone public, $125 is a high number. But with the plethora of personal information that users post on Facebook – willingly and for free – investors could be swayed, despite the lackluster stock performance of other social media companies.

While Facebook has proven itself to be a company with some longevity, the social media world has changed a lot since Mark Zuckerberg launched the website in 2004. Investors can’t be sure that Facebook will remain top dog for long.

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“It’s tough to predict how Facebook will do with all the hype,”  says Kevin Pleines, a market analyst for Birinyi Associates. “The market has not reacted too favorably [to social media companies] since the beginning of last year.”

Almost all of the social media companies that went public in 2011 are worth less now than they were on their opening days, he says. It’s unclear whether the weak state of the market had an influence or if social media companies simply aren’t a good buy.

However, Facebook may be different. Its value lies in the website’s wealth of personal data and its requirement that all users provide their real names. This vault of demographic information means that Facebook can post targeted ads with much greater accuracy than most other websites. With every “Like” or musical artist added to a user’s profile, related advertisements may better home in on potential customers.

Still, the value of some social networks has dropped by hundreds of millions after just a few years. MySpace was sold to Rupert Murdoch’s News Corporation for $585 million in 2005. Six years later, Specific Media bought it for a mere $35 million. What happened? The audience dried up. It fell from 70 million unique visitors per month in 2005 to around 35 million today, according to The New York Times.

There have been some success stories. LinkedIn opened to the public at $45 a share last May. The shares reached as high as $122.70 before averaging about $72 per share on Wednesday. Zynga, which makes Facebook games, has stayed consistent since opening at $10 per share on its first trading day last month. Both companies operate based on the amount of information or time consumers provide – which could bode well for Facebook.

This IPO could push Mr. Zuckerberg and his team to find new ways for people to hand over their personal information, and therefore more ways to make money. Such initiatives, like the ill-fated Beacon, have been met with mixed reactions, some deactivated accounts, and often outcries from users. Mad users may lead to falling share prices. On the other hand, if Facebook treads too lightly in the coming years, it may leave itself exposed to hungry competitors who are more willing to try out new features.

But as the IPO looms, “regular investors and IPO watchers are anticipating some kind of twist – perhaps a provision for the 800 million users of Facebook, a company that promotes itself as all about personal connections, to get in on the action,” reports the Associated Press.

Such a provision is strictly hypothetical at this point, but young tech darlings have had a history of creative filings. Google founders “Larry Page and Sergey Brin wanted an IPO accessible to all investors, and said so in their first regulatory filing,” adds the AP. “Facebook may say something similar when it files to declare its intention to sell stock publicly.”

But as of now, Facebook’s IPO success rides on the market’s reaction to social media. If the stock matches current expectations, Facebook could enjoy one of the largest IPOs in history. Even then, people may look back in a few years and say, “Oh, man! Remember Facebook?”

For more tech news, follow us on Twitter @venturenaut. And don’t forget to sign up for the weekly BizTech newsletter.

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